Tax 2021

On June 30, 20X0, Sally, who uses the cash method of accounting, borrowed $25,000 from a bank for use in her business. Sally was to repay the loan in one payment with $2,000 interest on December 30, 20X0. On December 30, 20X0, she renewed that loan plus the interest due. The new loan was for $27,000. What is the amount of interest expense that Sally can deduct for 20X0?

$0

You are in charge of sales and marketing at Piggy's Catering Inc. To encourage the continuation of an existing business relationship, you took one of your clients to a Broadway show. The visit to the show occurred directly after a substantial business discussion with that client. You paid a ticket broker $300 for two tickets to that show. The face value of each ticket was $100 ($200 total). What is your total deductible expense for both tickets?

$0

Jack's employer offers benefits to its employees using a cafeteria plan. Employees are able to choose between cash and nontaxable benefits. Jack chooses to receive only the health insurance, the value of which is $350 per month and then opts to receive cash instead of the life insurance. Jack received $1,100 in cash instead of life insurance. What amount of income must Jack include in his taxable gross income?

$1,100

Which of the following statements regarding deductible taxes is correct? Local benefit taxes for business assets are deductible only if they are for maintenance, repair, or interest charges related to those benefits Real estate taxes on business property included in monthly mortgage payments placed in escrow cannot be deducted by a cash basis taxpayer unless the lender actually paid the taxing authority Taxes on gasoline, diesel fuel and other motor fuels that you use in your trade or business should be deducted as part of the cost of the fuel Any tax imposed by a state or local government on personal property used in your trade or business is deductible

1, 2, 3 and 4

Basil Company, a cash basis taxpayer, had the following activity during 2019: Sales-2019, uncollected $40,000 Sales-2019, collected $1,000,000 Total Sales - 2019 $1,040,000 Collections on 2017 receivable not previously collected $50,000 What is the correct amount of income to be reported for 2019?

1,050,000

Laura Wilson leased a building for 5 years beginning July 1, 20X1 and ending June 30, 20X6, for $1,250 per month. On July 1, 20X1 Mrs. Wilson paid $22,500 in rent to her landlord. Under the accrual method, how much can she deduct in each year for 20X1 and 20X2?

20X1 $7,500; 20X2 $15,000

Tom Thumb owned a greenhouse that was built on leased land. He used the greenhouse 100% for business. During the current year, the greenhouse was totally destroyed by a hurricane (a federally declared disaster). The greenhouse cost $500,000 to build, had a fair market value of $300,000 and accumulated depreciation of $50,000 when it was destroyed. Tom received $250,000 from his insurance company to reimburse him for the loss. Tom's adjusted gross income for the current year is $54,000. What is the amount of Tom's deductible business loss on the greenhouse?

$200,000

Colleen started a SIMPLE plan for all five of her employees and herself. It cost her $400 in fees to administer the plan. She never had a pension plan prior to starting this plan. Her tax credit is:

$200.

Hannah runs a small consulting firm that she started in January 20X1. The firm's payroll per month is $2,000. Employees are paid once per month on the 15th of the month following the pay month. Hanna records payroll expense and a liability on December 31 of each year which is then paid in January of the following year. If Hannah is a cash basis taxpayer, and is in business the entire year, what is her payroll expense for 20X2?

$24,000

Gail Gray operates a small basket weaving business as a sole proprietor. She has the following Inventory in 20X1: Beginning Inventory Raw Material $5,000 Beginning Inventory Finished Goods $10,000 Ending Inventory Raw Material $6,250 Ending Inventory Finished Goods $4,700 She incurred the following expenses in 20X1: Inventory Purchases $17,500 Fabric Purchases used in Finished Goods $2,350 (not included in Inventory Purchases) Building Rent (administrative offices) $12,000 Freight-in on fabric $300 Freight-out on Sale of Finished Goods $475 What was her cost of goods sold?

$24,200

The Andrews Company makes sales on credit of $400,000 in Year One and $500,000 in 20X2 and recognizes those amounts for income tax purposes. The company operates on the accrual basis of accounting and believes that 2 percent of all credit sales will prove to be worthless. In Year One, $3,000 in accounts are judged to be completely worthless along with another $12,000 in 20X2. What is reported by the company as its bad debt expense for income tax purposes?

$3,000 in Year One and $12,000 in 20X2

The J&M partnership paid liability insurance on its building of $2,200 for the year 2019. This represents a premium for one year. J&M also prepaid fire insurance premiums of $2,400. The premium paid was for 2019 and 2020. What is the amount of insurance that J&M may deduct for 2019?

$3,400

Which of the following would be considered a fiscal tax year?

08/01/2019 - 07/31/2020

Walter is an accrual basis taxpayer who has a business with significant accounts receivables. In 20X1, Walter had an $8,000 receivable owed to his business from Fred. Fred was unable to pay the full amount, but did transfer a parcel of land with a fair market value of $6,000 to Walter in partial payment. Walter entered on his books the $2,000 difference as a business bad debt, but was unable to take a tax benefit from this bad debt deduction as he had no taxable income at the end of 20X1. In 20X2, Walter sold the land received from Fred at a $3,000 gain. At the end of 20X2, how much gain from the sale of this land must Walter report in taxable income?

3,000, the entire gain

When determining the proper treatment of a corporation's organizational and start-up costs which of the following is correct?

Amortization of organization and start-up costs start with the month business operations begin.

Wages subject to federal employment tax include all but:

Amounts paid under an accountable plan

Which of the following vehicles is eligible for suspension of the heavy highway motor vehicle use tax?

An agriculture vehicle used 7,500 or fewer miles.

Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. She works six days a week and is on duty in Bob's showroom on certain assigned days and times. She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Lists of prospective customers belong to the dealer. She is required to develop leads and report results to the sales manager. Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. She is paid a commission and is eligible for prizes and bonuses offered by Bob. Bob also pays the cost of health insurance and group-term life insurance for Donna. What is the employment status for Donna?

An employee.

Sam Sparks performs auto repair services in the repair department of President Automotive Company. He works regular hours and is paid on a percentage basis. He has no investment in the repair department. President Automotive supplies all facilities, repair parts, and supplies and issues instructions on the amounts to be charged, parts to be used, and the time for completion of each job. President Automotive's service manager approves all estimates and repair orders. What is the employment status of Sam Sparks?

An employee.

All of the following statements about fringe benefits are correct EXCEPT:

An employer can treat all meals furnished to employees on their premises as furnished for the employer's convenience if half of these employees are furnished the meals for a substantial nonpaid business reason.

Fred is an attorney in private practice who has been retained by ABC Corporation to maintain corporate compliance for a fee. Fred is classified as:

An independent contractor

Steve Smith, a computer programmer, was laid off when The Megabyte Company downsized. Megabyte agreed to pay Steve Smith a flat amount to complete a one-time project to create a certain product. It is not clear how long it will take to complete the project, and Steve Smith is not guaranteed any minimum payment for the hours spent on the program. Megabyte provides Steve Smith with no instructions beyond the specifications for the product itself. Steve and Megabyte have a written contract, which provides that Steve Smith is considered to be an independent contractor, is required to pay federal and state taxes, and receives no benefits from Megabyte. Megabyte will file Form 1099-MISC, Miscellaneous Income, to report the amount paid to Steve Smith. Steve Smith works at home and is not expected or allowed to attend meetings of the software development group. Steve Smith is _____.

An independent contractor

Bill Plum contracted with Elm Corporation to complete the roofing on a housing complex. Elm and Plum executed a contract that established a flat amount for the services rendered by Bill Plum. Bill is a licensed roofer and carries workers' compensation and liability insurance under the business name, Plum Roofing. He hires his own roofers who are treated as employees for federal employment tax purposes. If there is a problem with the roofing work, Plum Roofing is responsible for paying for any repairs. What is the employment status for Bill Plum?

An independent contractor doing business as Plum Roofing.

Which of the following accounting changes do not require the filing of Form 3115 to request a change in accounting method?

Correction of a math error.

Which of the following are NOT organizational costs that can be amortized

Costs of issuing and selling stock

All of the following credits are part of the General Business Credit EXCEPT:

Credit for employer paid FICA on employee tips used to meet the federal minimum wage rate

Which of the following credits is not part of the General Business Credit?

Credit for prior year minimum tax

Given the fact patterns below, which of the following entities may NOT use the cash method of accounting?

Dallas Partnership has two partners in 2019— Joe Dallas, an individual, and Deer, Inc. a corporation. Dallas Partnership averaged annual gross receipts are $26,500,000

The Kilometer Partnership sells computers and maintains its accounting system on the accrual basis. Kilometer sold and delivered a computer on December 29, 2018 and billed the customer $3,250 on January 7, 2019. Kilometer received the $3,250 payment on February 15, 2019. The check cleared on February 22, 2019. On which date will Kilometer recognize this income?

December 29, 2018.

Julio is an accrual basis taxpayer. He shipped $350 worth of merchandise to Roland on December 31, 2018. Julio sent Roland an invoice January 7, 2019 that was payable in 30 days. On February 3rd, Roland notified Julio that he was filing bankruptcy and could not pay. Roland never paid the invoice. When does Julio record the $350 in income?

December 31, 2018, the date when he shipped the merchandise to Roland

When an employer reimburses an employee for meals under an accountable plan while the employee is away from home, the employer must:

Deduct only 50% of the reimbursement on its tax return

Which of the following costs would qualify as business organizational costs?

State incorporation fees.

Ray owns a delivery truck and delivers bread to retailers locally for the Gorman Bakery. He owns his delivery route. In 20X1, Ray received a W-2 with gross wages of $30,000 in Box 1. Ray's Federal income tax rate is 15%. For the year 20X1, Ray is considered what type of employee and had what amount withheld for Federal income tax (FIT)?

Statutory / $0

Which item below is NOT considered material participation for purposes of determining passive activity status?

Taxpayer is a landlord, and is not a real estate professional, who allows a rental agency to handle all rental activity

Which of the following activities would subject a taxpayer to the uniform capitalization rules in tax year 2019?

Taxpayer produces real or tangible personal property for sale to customers and average annual gross receipts exceed $26,000,000.

Which of the following is NOT an acceptable inventory practice?

To properly value inventory at cost, include only the direct costs associated with each item.

Supplemental wages are compensation paid in addition to an employee's regular wages. They do NOT include payments for:

Travel reimbursements paid at the Federal Government per diem rate

Which of the following statements is NOT correct?

Under an accrual method of accounting, business expenses and interest owed to a related person who uses the cash method of accounting are deductible when the all-events test has been met.

The Investment Credit includes:

The rehabilitation credit and the qualifying advanced coal project credit.

What are the consequences for a business taxpayer who is required to use EFTPS for federal tax deposits but fails to do so?

The taxes not deposited via EFTPS are subject to a 10% penalty.

A taxpayer is provided a $300 per month mileage allowance for business travel from employer. In order for this to be a non-taxable item, which of the following is true?

The taxpayer must adequately account for the expenses within 60 days after they were paid or incurred.

Each month Betsy's employer gives her $600 for her business expenses. Sometimes Betsy spends more than the $600. Once a year, she negotiates the amount of expense money with her employer but she is not required to submit any proof of how she spends the $600 per month. How should Betsy report her expenses on her return?

These expenses are no longer deductible.

Wallace Black agreed with the Sawdust Company to supply the construction labor for a group of houses. The company agreed to pay all construction costs. But Wallace Black supplies all the tools and equipment. He performs personal services as a carpenter and mechanic for an hourly wage. He also acts as superintendent and foreman and engages other individuals to assist him. Sawdust Company has the right to select, approve, or discharge any helper. A Sawdust Company representative makes frequent inspections of the construction site. When a house is finished, Wallace is paid a certain percentage of its costs. He is not responsible for faults, defects of construction, or wasteful operation. At the end of each week, he presents Sawdust Company with a statement of the amount that he has spent, including what he's paid to those he has engaged. Sawdust Company provides him with a check for that amount from which he pays the assistants, although he is not personally liable for their wages. What is the employment status for Wallace Black and his assistants?

Wallace Black is an employee of Sawdust Company and his assistants are also employees of Sawdust Company.

Eric, a cash basis taxpayer, owned 25% of Watson, Inc. stock. Watson, Inc. files a calendar year U.S. Corporate Income Tax Return Form 1120 employing the accrual method of accounting. Eric loaned Watson, Inc. $100,000 at the beginning of 2018. The accrued interest on this loan was $5,000 as of December 31, 2018. Watson, Inc. paid Eric the $5,000 in January of 2019. How should Eric report the interest income and Watson, Inc. report the interest expense from this transaction?

Watson, Inc. reports the expense in 2018 and Eric reports the income in 2019

When is a business taxpayer required to withhold 24% from a payment made to a U.S. person?

When the payment is subject to Form 1099 reporting and the person does not provide a taxpayer identification number (TIN) in the manner required.

Determination of whether a worker is an independent contractor or an employee is dependent upon _____.

Whether the employer has the right to control what the worker does and how he is to do it.

Which of the following is NOT an informational return?

Form 1120, U.S. Corporation Income Tax Return

Current period adjustments required for information entered on Form 941 are made by reporting the adjustment on _____.

Form 941

What IRS form does an employer use to obtain an EIN?

Form SS-4

Applicable Large Employers (ALEs) must report to the IRS information about health care coverage, if any, they offered to full-time employees. To do this, they must use:

Forms 1094-C and 1095-C

The general business credit consists of the following credits EXCEPT:

Qualified electric vehicle credit

The taxpayer is a merchant who has purchased inventory items. He withdrew some of these items for personal use. He must:

Reduce the cost of purchases by the cost of the personal use items.

generally you must capitalize rental expenses if any of the following apply EXCEPT:

Rent increases during the lease.

Paul is employed by his spouse Jasmine in her flower shop. Paul's wages are subject to what type of tax?

income tax and FICA, but not FUTA.

An Employer who does not file Form 944 elects to file Form 941. If an exception does not apply, the employer _______

must file Form 941 for each calendar quarter regardless of whether he paid wages or not.

During 20X1, Frank gave the following gifts to business clients: (NONE of the employees of the receiving companies were to receive more than ONE gift.) 100 pens with Frank's company name imprinted on them, $400 valued at $4 each, to Corporation X 25 bottles of wine valued at $30 each to Corporation Y $750 Wrapping paper for the 25 bottles of wine $50 15 floral arrangements valued at $25 each to Z Company $375 The amount that Frank can deduct for business gifts in 20X1 is:

$1,450

Horse and Carriage Corporation distributes the following gifts to their clients: 100 clipboards with their company logo on them, valued at $3 each ($300 total); 50 bottles of wine to clients who had orders over $50,000 during the year costing $35 each ($1,750 total) at Christmas. The amount that Horse and Carriage can deduct for business gifts is:

$1,550

You buy an interest in a partnership for $20,000 using borrowed funds. The partnership's only assets include machinery used in the business valued at $60,000 and common stocks valued at $15,000. During the year you paid $2,000 interest on the loan. How much interest is deductible as interest attributed to a trade or business?

$1,600

Rudy, a plumber, paid the following taxes: $800 on the purchase of a new truck, $1,500 for the current year's business related property tax, $150 sales tax on miscellaneous office supplies, $600 sales tax on merchandise he purchased for resale. How much can he deduct as a current business expense for federal tax purposes?

$1,650

Uma is engaged in a not-for-profit activity. The income and expenses of the activity are as follows: Gross income $3,300 Less Expenses: Real estate taxes $600 Home mortgage interest $1,000 Insurance $500 Utilities $600 Maintenance $300 Depreciation on an automobile $600 Depreciation on a machine $300 Total expenses $3,900 Loss $600 The amount of allowable depreciation for the machine only is:

$100

You operate a business and file your tax return on a calendar-year basis. You bought a fire insurance policy on your building effective November 1, 20X0, and paid a premium of $1,200 for 2 years of coverage. How much can you deduct on your 20X0 return?

$100

Jennifer Lloyd sells products to John Smith and Co. She gave the firm five packages of cashews to thank five employees for the referrals. Ms. Lloyd paid $75 for each package. How much can Jennifer deduct for the gifts on her tax return?

$125

An employer must withhold Social Security tax for wages paid to each employee. What is the wage base for which they must withhold in 2019?

$132,900

Greg and Elaine formed Spring Lawn, Ltd., a calendar year partnership in the current year, to provide yard maintenance to residential customers. Before they began operations in May of the current year, they incurred legal fees of $2,000 and consulting expenses of $1,000 to draft the partnership agreement and file the required forms. They also paid a commission of $600 to a broker to market partnership interests. If Spring Lawn amortizes the applicable costs, what amount of amortization does it report on its current year partnership tax return?

$133

For the year ended December 31, the DEF partnership had the following items of expense or loss: Salaries paid (other than partners) $45,000 Charitable contributions $3,000 Foreign income taxes $2,500 Real estate taxes for partnership office building $7,250 Loss on the sale of machinery held 5 years $8,900 Total $66,650 How much of the $66,650 total is NOT deductible in figuring the partnership's ordinary income or loss

$14,400

Wilma Smith leased a building for her business for 4 years beginning in March 20X1 for $1,500 per month. On March 1, 20X1, Mrs. Smith paid her landlord $33,000 in rent. How much can she deduct on her 20X1 tax return?

$15,000

Jack Roston operates a small manufacturing business as a sole proprietorship. His business, Roston Rubber, manufactures industrial rubber seals and also makes rubber bands used in packaging. He uses the accrual method of accounting. He incurred the following expenses during the tax year. What was the cost of goods sold? (Disregard uniform capitalization rules for this computation.) Beginning inventory, raw materials $14,000 Beginning inventory, work in process $20,000 Beginning inventory, finished goods $100,000 Ending inventory, raw materials $15,000 Ending inventory, work in process $12,000 Ending inventory, finished goods $110,000 Purchases $2,000,000 Salaries, factory $200,000 Salaries, sales $50,000 Chemicals used in the manufacturing process $10,000 Office supplies $5,000 Freight-in on raw material purchases $3,000

$2,210,000

What is the total amount a sole proprietor is obligated to report on 1099-MISC forms based on the following expenses for services claimed on schedule C? Incorporated law firm: $600 Web page designer: $800 ($600 labor and $200 software) Sign printer: $500 Incorporated janitorial company: $800 Consultant A: $1,000 ($400 paid in cash and $600 paid by check) Consultant B: $500 paid in cash Consultant C: $400 paid by check

$2,400

During 20X1, Mr. Jones had the following expenditures relating to commercial real estate that he owns: County property tax $1,850 State property tax $920 Assessment for sewer construction $1,200 Charges for sewer and water service $810 What is the amount Mr. Jones can deduct as real estate taxes on his commercial real estate for 20X1?

$2,770

The Acme Corporation paid the following four amounts. Which of these amounts is fully deductible for income tax purposes?

$20 paid to buy a gift for a customer

Ernest, a self-employed watchmaker, traveled to Germany in September. During his eight-day stay in Germany, he attended a 2-hour watch making seminar in the city of Berlin on Monday and took a 4-hour tour of a watch manufacturing facility in Dresden on Wednesday. The rest of the time Ernest spent hiking and touring the countryside. Ernest incurred the following costs for this trip: Round trip airfare of $500 Lodging of $1,000 Meals of $300 Seminar and tour registration fees of $200 What is the amount that Ernest can deduct as business expenses for this trip to Germany?

$200

In 20X1, John and George formed a partnership that began business on July 1, 20X2. They spent $4,000 in legal fees for negotiating and preparing the partnership agreement, $2,000 for accounting services setting up the partnership's books, and $1,000 in commissions associated with acquiring assets for the partnership. They made a proper election to amortize organization expenses over a 180 month period. Assuming these are their only expenses in setting up their partnership, what is the proper amortization expense for organizational costs in 20X2?

$200

Jeanne incurred start-up costs for her new business, which opened October 1. The costs were for advertising of $1,000, a market analysis survey of $2,500, employee training costs of $6,000, and travel costs for securing prospective distributors of $2,500. If Jeanne does not elect to deduct any of these costs, what part of the amortizable costs may be deducted in the first year?

$200

Sandy and Buffy formed the S&B Partnership in November of 20X1. They began business operations in December 20X1. During 20X1 they incurred the following costs: $2,500 to their attorney for negotiating and preparing the partnership agreement. $250 for filing fees for the partnership agreement. $1,000 to their CPA for services incident to the organization of the partnership. $500 in costs associated with transferring assets to the partnership. What is the maximum dollar amount that S&B Partnership can elect to amortize as organizational costs?

$3,750

Williams Manufacturing has the following account information at year-end. Compute ending inventory. Physical inventory at 12-31 at cost, all accounts $300,000 Stock sold by Williams Manufacturing and shipped FOB destination 12-30 $ 5,000 (Not yet received) Raw materials ordered 12-20 being sent FOB destination, $10,000 (Not yet received)

$305,000

Shawn Smith, a sole proprietor, had the following transactions during 20X2: Received rental income $7,500 Performed legal services for ATI Corporation in return for 10 shares of stock $24,000 Recovered accounts receivable that had been written off and deducted in 20X0 (did not reduce tax) $20,000 What amount must Mr. Smith include in gross income for 20X2?

$31,500

B invested $20,000 cash for a 55% interest in ABC Partnership. B materially participates in the partnership's business and the partnership agreement states he is liable for all of the partnership's debts. The only partnership debt at the year-end was a $17,000 loan from Cook bank. Partner B and the other general partner had a separate agreement that B's liability would not exceed $12,000. The partnership reported a $60,000 ordinary loss for the current year. Assuming there were no other adjustments to B's basis, what is the amount of B's deductible loss for the current year?

$32,000

On July 1, 20X0, Mel leased property for 2 years for $700 a month. On September 30, 20X0, the owner of the property told him if he paid the total in advance for the remainder of the lease the rent would be reduced to $675 a month. Mel accepted his offer and on October 1, 20X0, he paid the owner $14,175. How much can Mel deduct as rental expense in 20X0?

$4,125

Orlando Waste Company had 75 full-time employees. The company offered minimum essential coverage to 73 employees out of which two employees qualified for the premium tax credit. Assume the shared responsibility payment amount is $3,000 for an applicable large employer (ALE) that offers minimum essential coverage to at least 95% of its employees. What is the expected employer shared responsibility provision payment?

$6,000

As a business owner of a dress shop in Los Angeles, you take a business trip to Reno. On your way to Reno, you stop in Las Vegas to visit a friend. You spend 3 days in Las Vegas and 4 days in Reno. Your travel expenses for the 7 days are $630. If you had not stopped in Las Vegas, the cost of the trip to Reno would have been $420. How much may be deducted before considering any meals limitation?

$420

Matthews is a 40 percent partner in the WestBrook Partnership. Matthews has a tax basis (capital share) in the partnership of $45,000. Matthews has not loaned the partnership any money but is responsible for her share of the debts. The partnership has $100,000 in assets and $60,000 in liabilities. This year, the partnership reported an ordinary business loss of $120,000. What amount of that loss can Matthews deduct on her individual income tax return this year?

$48,000

Rob and George own an office building that was built in 1975. They opened a tax return business and made numerous renovations to the building to bring it into compliance with the Americans with Disabilities Act. They had gross receipts of $750,000 dollars and ten full-time employees during the year. They spent $15,000 in eligible access expenditures. What is the current year Disabled Access Credit?

$5,000

Ryan runs a manufacturing business employing several people with young children. These employees require daycare as both parents work. He decided that, in order to make it easier for his employees to come to work each day, he would allocate some of the unused space in his manufacturing facility to a child care facility. He incurred $20,000 in qualified childcare facility expenditures. He had no qualified childcare resource and referral expenditures and had no pass through credits. What is Ryan's credit?

$5,000

The F&E Partnership spent $100,000 on eligible access expenditures that qualify for the disabled access credit. The partnership had gross receipts of $1 million and 30 full-time employees during the preceding tax year. What is the amount of the disabled access credit for the year?

$5,000

ABC Corporation incorporated on May 1 of Year One. They incurred $7,500 in organizational expenses. What is the total amount of organizational costs that ABC claims as a deduction its Year One tax return?

$5,111

Joe, a cash basis taxpayer, owned and operated a business. He began having difficulty paying his business debts in late 20X0. Joe owed Gail, his computer consultant, $2,200 for services rendered at his business and $500 for non-business services rendered at his home. In 20X1, Gail forgave the entire debt of $2,700. Joe is neither bankrupt nor insolvent. What amount will Joe be required to include in income on his tax return for 20X1?

$500

Jeff's car dealership employed 56 full-time employees. Jeff did not offer minimum essential coverage to his employees. For the calendar year, the shared responsibility payment amount is $2,000 for an applicable large employer (ALE) that does not offer minimum essential coverage to at least 95% of its employees. What is the amount of Jeff's employer shared responsibility payment?

$52,000

The FX Partnership manufactures garden hoses for sale. In the month of January, its sales were $80,000. During that month, the partnership had: Beginning inventory, January 1$0Raw materials purchased January 1$35,000Raw materials shipping costs $1,585Direct labor (production)$27,000Factory overhead $6,000Ending inventory, January 31 $10,000 What is the cost of goods sold for the FX Partnership for the month of January?

$59,585

Mary, a seamstress, made loans of $5,000 and $1,000 to Buttons & Bows and Thread Bare, respectively. Both of these establishments are partnerships. Mary also made a loan of $2,000 to her cousin Sarah, who was starting her own business as a proprietorship. The loans to both partnerships improved Mary's business, which was the reason Mary made the loans. If all three loans become uncollectible, what amount may Mary deduct as a business bad debt?

$6,000

On January 1, 20X1 Charlie paid $3,000 to purchase a 4-year lease on an office building. At that time, Charlie paid $24,000 in advance for all monthly lease payments through the end of the lease term. How much can Charlie deduct for 20X1?

$6,750

Medford owns a small consulting firm. The company is incorporated and operates as an accrual basis taxpayer. In January of the current year, the firm did work for a client and accepted a note for $60,000 plus interest at a 10 percent annual rate in lieu of immediate payment. After exactly six months, the client went bankrupt and the note was judged to be worthless. That was the only account judged to be worthless during the year. At the end of the year, for financial reporting purposes, the company estimated its bad debt expenses as $69,000 which increased the allowance for doubtful accounts to a balance of $71,000. What is the amount of the bad debt expense deduction that this business is entitled to report for tax purposes?

$60,000 if the company has not accrued interest on the note.

In his spare time, Robert Granger operates a lawn care service. He owns several lawn mowers and purchased a small shed in which to keep them and his supplies. During Year One, he generated revenues of $11,000. He also spent $220 on a business license and $600 for gasoline, motor oil, and spark plugs. He had taken out a loan to allow him to buy his mowers. He paid $3,000 on the loan this year which included interest of $500. He paid for advertising in a local newspaper at a cost of $900 and he made a contribution of $300 to the local church. He also made an estimated tax payment on his federal taxes of $1,000. Depreciation on his lawn mowers and the shed were $1,200. Granger is currently filing his Form 1040 for the year. He is computing his net income on his sole proprietorship on Schedule C. What is the income from this business?

$7,580

A company increased their research expenses by $3,600. What is the maximum credit they can qualify for on their tax return?

$720

On New Year's Eve, Hal sent three bottles of champagne to the three owners of the Day & Night Cleaners to thank them for their business during the year. Each bottle of champagne cost $75. Each of the owners took the champagne home. Earlier in the year, Hal had given a video game to the son of one of the owners. The value of the game was $50. Hal took his biggest customer to a football game where they had a substantial discussion about a new potential contract. The value of the tickets was $100. What is the total amount Hal can deduct as business gifts?

$75

Thomas recently negotiated a substantial sale. Following the signing of the contract, Thomas took the clients to dinner at a cost of $150. How much of this dinner is deductible?

$75

A partnership has $1,000 of nonrecourse liabilities and $500 of recourse liabilities. The recourse liabilities are attributable to Karen who is a 50% partner. Karen contributed property with a fair market value of $400 and an adjusted basis of $250 for her interest in the partnership. The first year of business the partnership incurred a $4,000 loss. How much of this loss, if any, may Karen deduct on her tax return?

$750

in 20X1, Lakewood, a cash-basis partnership, incurred $8,000 of organizational expenses that were not paid until 20X2. The partnership began business on July 1, 20X1, and elected to amortize organizational expenses over a 180-month period on its 20X1 tax return. How much of the $8,000 organizational expense can the partnership deduct in 20X2?

$800

The Trust Fund Recovery Penalty (TFRP) is a penalty against any person required to collect, account for, and pay over taxes held in trust who willfully fails to perform any of these activities. The trust fund recovery penalty is _____.

100% of the employment taxes that should have been timely paid

What form does an applicable large employer with 50 or more full-time employees use to report information about health coverage to its employees?

1095-C

The Pine Tree Bakery has just opened for business and has elected to amortize its startup expenses. What is the number of months over which the start-up costs can be amortized?

180 Months

Bob works on the loading dock for the Loaden Partnership from 7:00 am to 3:00 pm, Monday-Friday. Susan, the full-time secretary, works a 4-day week. Max, the bookkeeper, is the sole proprietor of the Books-I-Keep Accounting Service and is a licensed accountant. Max works a different schedule each week for Loaden but is very conscientious and reliable. How many of these individuals are considered employees?

2

Santergraph, Inc. remodeled and converted a portion of their building into a licensed child care facility open for the care of any of their employees' children. The cost of this remodeling qualifies for which of the following:

A general business tax credit of 25% of the qualified expenses, maximum credit of $150,000, with the balance depreciable.

Which of the following is a statutory employee?

A homeworker who works by guidelines of, and uses materials provided by, the person for whom the work is done

Which of the following penalties paid by Castle Construction Corp is deductible?

A penalty for late performance of a contract.

The following business entities, formed after 2006, are required to have an EIN, EXCEPT: A partnership

A qualified joint venture

An employee that qualifies for the work opportunity credit must be a member of a targeted group. All of the following are considered a targeted group EXCEPT:

A qualified relative of the employer

Which of the following costs qualify as business start-up costs?

A survey of potential markets.

ABC Corporation pays John Peters a base salary on the first of each month. Mr. Peters is single and claims one withholding allowance. In January, he is paid $1,000. Using the wage bracket tables, ABC properly withholds $21 from this amount. In February, Mr. Peters is paid his salary of $1,000 plus a commission of $2,000, which ABC includes with his regular wages. How should ABC calculate the withholding from these amounts?

ABC should calculate the withholding based on the total of $3,000.

Abraham becomes an equal partner in the Kitcat and Kidd Partnership in 20X2. In 20X1, he filed his personal tax return on the calendar tax year basis. The partnership reports income and expenses on the fiscal tax year basis. How should Abraham report partnership income or loss distributed to him?

Abraham must report income and expenses on the calendar year basis.

Alex opened a repair garage to fix cars owned by his neighbors. He rented space and purchased equipment and tools. Although he did generate revenues, Alex experienced a loss during each of the first two years of operations. His expenses have exceeded his revenue and he has been using his personal credit cards to pay his bills. Which of the following statements is true?

Alex must make a profit in each of the next three years or he may need to treat this activity as a hobby.

The Lucky Corporation has just been formed. It has organizational costs that the corporation wishes to amortize. Which of the following tests must the Lucky Corporation meet before it can amortize the organizational costs?

All of the above

Which of the following employers may not be required to timely file Form 941, Employer's Quarterly Federal Tax Return?

All of the above

Most unincorporated businesses formed after 1996 can choose whether to be taxed as a partnership or a corporation. The new regulations provide for a default rule if no election is made. If an election is not made and the default rules apply, which of the following is True?

All of the above are True.

How can an employer obtain an EIN?

All of the above.

Which of the following taxpayers could be considered to be self-employed for the purposes of claiming the self-employed health insurance deduction?

All of the above.

Steve Smith, a computer programmer, was laid off when The Megabyte Company downsized. Megabyte agreed to pay Steve Smith a flat amount to complete a one-time project to create a certain product. It is not clear how long it will take to complete the project, and Steve Smith is not guaranteed any minimum payment for the hours spent on the program. Megabyte provides Steve Smith with no instructions beyond the specifications for the product itself. Steve and Megabyte have a written contract, which provides that Steve Smith is considered to be an independent contractor, is required to pay federal and state taxes, and receives no benefits from Megabyte. Megabyte will file Form 1099-MISC, Miscellaneous Income, to report the amount paid to Steve Smith. Steve Smith works at home and is not expected or allowed to attend meetings of the software development group. Steve Smith is _____.

An independent contractor.

Tom Spruce rents a cab from Taft Cab Company for $150 per day. He pays the costs of maintaining and operating the cab. Tom Spruce keeps all fares that he receives from customers. Although he receives the benefit of Taft's two-way radio communication equipment, dispatcher, and advertising, these items benefit both Taft and Tom Spruce. What is the employment status for Tom Spruce?

An independent contractor.

Vera Elm, an electrician, submitted a job estimate to Beachway Motel for electrical work at $16 per hour for 400 hours. She is to receive $1,280 every 2 weeks for the next 10 weeks. This is not considered payment by the hour. Even if she works more or less than 400 hours to complete the work, Beachway Motel will pay Vera Elm $6,400. She has also advertised her services and performs various electrical installations under contracts with other businesses. What is Vera Elm's employment status?

An independent contractor.

Which of the following statements is correct regarding the filing of informational returns to the Internal Revenue Service?

Any person with reportable transactions must file informational returns.

Which of the following dates would not be considered the end of a tax year?

April 15, 2019

An employer who must file Form 941, and does not use a reporting agent can do so by which method?

By mail

Which of the following is NOT a true statement regarding business bad debts?

Cash-basis taxpayers can take a deduction for amounts never received or collected.

Which of the following entities is subject to the passive activity rules at the entity level?

Closely held corporations.

Which of the following entity classifications is available for a newly-formed single-member domestic limited liability company (LLC)?

Disregarded Entity or Corporation

An LLC is a legal entity under state law that can make certain elections with respect to the treatment it receives for tax purposes. What is the default tax treatment for a single member LLC?

Disregarded entity

What tax treatment is unavailable to a multi-member LLC?

Disregarded entity

Donna Yuma is an attorney who rents office space and pays for the following items: telephone, computer, on-line legal research linkup, fax machine, and photocopier. Donna buys office supplies and pays bar dues and membership dues for her membership in three other professional organizations. Donna has a part-time receptionist who also does the bookkeeping. Donna pays the receptionist, withholds and pays federal and state employment taxes, and files a Form W-2 each year. For the past 2 years, Donna has had only three clients, corporations with which there have been long-standing relationships. Donna charges the corporations an hourly rate for her services, sending monthly bills detailing the work performed for the prior month. The bills include charges for long distance calls, on-line research time, fax charges, photocopies, postage, and travel, costs for which the corporations have agreed to reimburse her. What is the employment status for Donna and the receptionist?

Donna is an independent contractor and the receptionist is Donna's employee.

if a partnership fails to timely pay its employment taxes, from whom can the IRS seek to collect the trust fund recovery penalty?

Each and every one of the partners and any other person the IRS determines to be responsible.

After the calendar year is over, an employer must furnish a copy of Form W-2 to whom?

Each employee who earned wages during the year.

Donna and David are married and partners in ABC partnership, a qualified joint venture. How do they report the income from the partnership on a joint return?

Each of them must report their respective net earnings from self-employment from the partnership on a separate Schedule SE

What is EFTPS?

Electronic Federal Tax Payment System. It's the system by which taxpayers pay taxes electronically.

Kenneth's employer gives him $500 a month ($6,000 for the year) for his business expenses. Kenneth does not have to provide any proof of his expenses to his employer and he can keep any funds that he does not spend. His actual expenses for the year were $1,000 for lodging, $600 for meals while away from home, and $2,000 for entertainment. What reporting is required of Kenneth's employer and what reporting is required of Kenneth?

Employer adds $6,000 to wages reported on Kenneth's Form W-2; Kenneth takes no deductions on Form 2106 or Schedule A.

Which of the following is NOT a potential limitation on S corporation or partnership losses?

Excess business income limitations

Taxpayer A has $750,000 in net business losses. After applying the current year loss limitation for a single taxpayer, the remaining amount is:

Excess business loss and part of the taxpayer's net operating loss (NOL) carryforward in subsequent taxable years.

If reporting by paper, the deadline to file Form 1095-C is:

February 28th

In which circumstance should a taxpayer attach form 1099-R to his tax return if not filing electronically?

Federal income tax is withheld.

Animor, a self-employed businessman, prepared payroll tax returns and income tax returns for Yethir, Inc. on a continuous basis. Yethir, Inc. paid Animor $900 during the tax year for his services. What is Yethir, Inc.'s reporting responsibility?

File a 1099 MISC for $900.

An employer is required to keep copies of an employee's W-4 _____.

For four calendar years.

Which of the following items are generally included in inventory?

Goods you have sent out on consignment for someone else to sell

Which of the following accounting methods is not an acceptable method of reporting income and expenses?

If you use the cash method for figuring your income, you can use the accrual method for figuring your expenses.

Which of the following taxes is an employer not required to withhold from his statutory employee's wages?

Income tax

Paul is employed by his spouse Jasmine in her flower shop. Paul's wages are subject to what type of tax?

Income tax and FICA, but not FUTA.

Wages subject to federal employment tax include all but:

Insurance premia

The following are benefits of electing qualified joint ventures status, EXCEPT:

It receives automatic classification as a partnership.

Davis is a tax preparer. He will have to file a 20X1 Form W-2 for which of the following individuals:

Jana interviewed clients for Davis during the 20X1 tax season. She only worked during the tax season and was paid an hourly wage against a commission amount. Davis withheld income and FICA taxes from each paycheck.

John and Jim each own 50% of J&J Partnership, which was founded in 2005. J&J is a calendar year taxpayer. On March 15, 2019, they elected to be treated as a corporation for Federal tax purposes by filing a Form 8832. What is the earliest date that J&J can be treated as a corporation without regard to the election relief rules?

January 1, 2019

By what date must an employer provide a copy of Form W-2 to his employee?

January 31

A cafeteria plan is a written plan that allows employees to choose between receiving cash (or another taxable benefit) and certain qualified benefits for which the law provides an exclusion from wages (deferral). Which of the following can be included in a cafeteria plan?

Life insurance

which of the following meals qualify for a 100% deduction?

Meals furnished to your employees as part of the expense of a company picnic

An employee who does not have a Social Security Number _____.

Must apply for one if eligible and can work without one while waiting for one to be assigned.

Milton Manning, an experienced tile setter, orally agreed with NOP Company to perform full-time services at construction sites. He uses his own tools and performs services in the order designated by NOP and according to its specifications. NOP supplies all materials, makes frequent inspections of his work, pays him on a piecework basis, and carries workers' compensation insurance on him. He does not have a place of business or hold himself out to perform similar services for others. Either party can end the services at any time. What is the employment status for Milton Manning?

NOP's employee

Ned accepted stock in his employer's company valued at $1,000 instead of his $1,000 salary payment. Which tax consequence of this transaction is correct?

Ned must recognize $1,000 income because the stock is payment for services

Which of the following would be considered passive activity income?

None of the above

Which of the following is NOT a characteristic of a qualified joint venture?

One spouse materially participates in the trade or business

The Hamerstein Corporation is created in Year One and organization costs to get started amount to $46,000. For income tax purposes, which of the following statements is true with respect to the handling of these costs?

Organizational costs can be immediately deducted up to $5,000 with the remainder amortized to expense over 180 months.

A company begins operations on December 31, Year One and spends $6,000 on organization costs. Which of the following statements is true with respect to organization costs incurred by a corporation?

Organizational expenses can be immediately deducted up to $5,000.

What is the default tax treatment for an LLC having more than one member?

Partnership

Which of the following taxpayers is not eligible to file a schedule C?

Partnership

A business taxpayer uses Form 1099-MISC to report certain business payments. These payments include the following items:

Payments of $600 or more for services performed by an attorney that is not an employee

Business taxpayers may deduct certain expenses which relate directly to the conduct of business. Of the following, which is NOT a deductible miscellaneous expense?

Political contributions

Of the following expenses, which should Acme Pillow not consider in the calculation for cost of goods sold?

Sales commissions paid to an internal sales team

In which one of the following business situations do the uniform capitalization rules for capitalizing direct and indirect cost of production or resale NOT apply?

Sell office supplies purchased wholesale; average annual gross receipts $20 million.

Jaqueline's arts and crafts chain, Jaque De Art, offered minimum essential coverage to 15 of her 30 full-time employees. Eight employees qualify for the premium tax credit. What is her expected shared responsibility provision payment?

She does not need to make a shared responsibility payment

Which of the following costs should not be included in the cost of inventory?

Shipping to customers

For federal tax purposes, spouses electing qualified joint venture status are treated as?

Sole proprietors

Which of the following statements is true regarding a qualified joint venture?

The QJV option simplifies the filing requirements by allowing a business whose only members are a taxpayer and spouse to be treated as a two sole proprietorships on a joint Form 1040 federal tax return rather than a partnership for tax purposes.

Which of the following is NOT a characteristic of a qualified joint venture?

The business is a partnership or LLC

If a business uses commercial software to summarize business expenses, what is the record retention requirement for paper records such as receipts and invoices?

The business should keep its paper records for as long as is necessary; there is no set time.

An election to amortize may be made for qualifying costs of organization for a business. Which of the following is NOT considered a qualifying cost?

The costs of acquiring assets.

Under the Affordable Care Act, Applicable Large Employers (ALEs) must either offer minimum essential coverage or potentially make an employer shared responsibility payment. Employers qualify as an ALE if:

The employer employed an average of at least 50 full time employees on business days during the preceding calendar year.

A corporation has paid several amounts this year and is now trying to determine which costs can be deducted for income tax purposes. Which of the following is necessary for an expense to be deductible?

The expense must be ordinary, necessary and reasonable in amount.

If a corporation transfers its stock to an employee as payment for services, the amount the corporation can deduct would be:

The fair market value of the stock on the date of the transfer less any amount paid by the employee.

If federal income, Social Security, or Medicare taxes that must be withheld are not _____, the trust fund recovery penalty may apply.

Withheld, or deposited, or paid

Is there a tax credit available to small employers who establish a qualified retirement plan for their employees?

Yes, there is one credit of up to $500 for each of the first three years of establishment.

Under the general rule, all of the following require you to capitalize rental expenses in 2019 EXCEPT:

Your rent increases during the lease.

James Miller is a sommelier at boutique wine shop. On a Wednesday evening, he holds a meeting with several of the store's suppliers. The meeting lasts for several hours as they discuss various wines that will become available during the following year. After the meeting, at the request of his employer, Miller takes the entire group to a local minor league baseball game and pays for the entire event with his own money. How much of this cost can he deduct for income tax purposes?

Zero

Julia owns a small consulting firm. The company operates as a cash basis taxpayer. In January of the current year, the firm did work for a client and accepted a note for $40,000 plus interest at a 10 percent annual rate in lieu of immediate payment. After exactly six months, the client went bankrupt and the note was judged to be worthless. What is the amount of the bad debt expense deduction that this business is entitled to report?

Zero

The Hyldina Corporation has an account receivable for $10,000 from Prosgko Corporation that is outstanding at the end of 20X1. Hyldina believes that there is an 8 percent chance of collecting this receivable. Hyldina is an accrual basis taxpayer. What can be deducted by Hyldina on the company's 20X1 income tax return?

Zero

Generally, a substantial business inventory requires use of which method of accounting?

accrual

What are employment trust fund taxes?

the employee's share of FICA and the income tax that the employer withheld.